MUMBAISILICONVALLEYBENGALURUSINGAPORENEWDELHINEWYORKGIFTCITYResearchTheIndianPharmaceuticalIndustryRegulatory,LegalandTaxOverviewAugust2024?NishithDesaiAssociates2024ResearchTheIndianPharmaceuticalIndustryRegulatory,LegalandTaxOverviewAugust2024DMSCode:30670.1?NishithDesaiAssociates2024Rankedasthe‘MostInnovativeIndianLawFirm’intheprestigiousFTInnovativeLawyersAsiaPaci?cAwardsformultipleyears.Alsorankedamongstthe‘MostInnovativeAsiaPaci?cLawFirm’intheseeliteFinancialTimesInnovationrankings.?NishithDesaiAssociates2024TheIndianPharmaceuticalIndustry—Regulatory,LegalandTaxOverviewDisclaimerThisreportisacopyrightofNishithDesaiAssociates.Noreadershouldactonthebasisofanystatemencontainedhereinwithoutseekingprofessionaladvice.Theauthorsandthefirmexpresslydisclaimallananyliabilitytoanypersonwhohasreadthisreport,orotherwise,inrespectofanything,andofconsequenofanythingdone,oromittedtobedonebyanysuchpersoninrelianceuponthecontentsofthisreport.ContactForanyhelporassistancepleaseemailusonconcierge@orvisitusat.AcknowledgementsTanyaKukadetanya.kukade@VarshaRajeshvarsha.rajesh@EshikaPhadkeEshika.phadke@Dr.MilindAntaniMilind.antani@?NishithDesaiAssociates2024ProvideduponrequestonlyTheIndianPharmaceuticalIndustry—Regulatory,LegalandTaxOverviewContentsExecutiveSummaryIntroduction135IndiaEntryStrategiesA.InvestmentClimateinIndia56B.GovernmentProductionLinkedIncentivesC.India’sPost-TripsIntellectualPropertyEnvironmentD.FormofTheIndianEntity66E.CorporateGovernanceinIndiaF.Anti-CorruptionFramework910LegalandRegulatoryRegimeinIndiaA.OutlineofLegalandRegulatoryFrameworkB.RegulatoryFramework111111C.ProposedLawonRegulationofPharmaceuticalProductsD.ManufacturingaDruginIndiaE.ImportingaDrugintoIndiaF.Manufacture/ImportofNewDrugsG.ClinicalTrials1414151616181819192020212223H.ProductStandardsI.OTCandPrescriptionDrugsJ.PharmacyK.E-PharmacyL.LabelingM.ShelfLifeN.GoodManufacturingPractices(GMP)O.PricingofDrugsandDrugPriceControlOrder,2013P.AdvertisementandSalesPromotion?NishithDesaiAssociates2024ProvideduponrequestonlyTheIndianPharmaceuticalIndustry—Regulatory,LegalandTaxOverviewTheAnti-TrustRegulatoryFramework2729IntellectualPropertyLandscapeA.PatentProtection2932B.TrademarksTaxRegimeA.DirectTaxesB.IndirectTaxes363648KeyIssuesandChallengesinIndianPharmaIndustryA.Promotionandadvertisement5050505051B.PriceControlC.LabellingD.EnvironmentalDiligenceE.GMPRelatedNon-CompliancesandSafetyConcernsF.FixedDosecombinations5151G.OverlapwithotherIndustriessuchasBio-PharmaandMed-Tech52Conclusion53AnnexureA54ListofDrugLicensesUnderDCA54AnnexureB58TargetedTimelinesforApprovalofLicenseApplications58?NishithDesaiAssociates2024ProvideduponrequestonlyTheIndianPharmaceuticalIndustry—Regulatory,LegalandTaxOverviewExecutiveSummaryTheIndianPharmaceuticalindustryhasgainedmomentuminthepastyearandhaswitnessedanincreasfocusonencouragingresearchanddevelopmentandinnovation.Pharmaceuticalcompaniesarefocussintheirresourcesonbiotechstartupsandpushingforinnovationtoaimforcontinuedgrowthinthesector.TheindustryisexpectedtogrowuptoUSD130billioninvaluebytheendof2030.2Thedomesticpharmaceuticalmarketgrewby6.8%in2023.3InFY2023–24,India’sdrugandpharmaceuticalexportsshowedanotableincreaseof9.67%reachingUSD27.9billion.4IndiaalsohasthelargestnumberomanufacturingsitesapprovedbytheUnitedStatesFoodandDrugAdministration(USFDA)outsidoftheUnitedStates5whichisanimportantfactorinboostingtheglobalconfidenceinthedomesticalmanufactureddrugsandpharmaceuticalproducts.Theindustryistypicallyinvolvedinfourtypesofbusinesses:marketingofgenericmedicines,marketinofbrandedgenericmedicines,marketingofinnovatormedicinesandmanufactureandsupplyofactivpharmaceuticalingredients,whichareusedasingredientsinmedicinesaswellasfinishedformulations.ThefocusondevelopmentofnewdrugsbeganwiththeintroductionofamendmentstoIndia’spatentregiin2005whichpermittedpatentingofpharmaceuticalproducts.Thus,whilemanydomesticcompaniesainvestingsubstantialamountsindrugresearchanddevelopment,Indiaisstillnotaninnovator’smarket.TheIndianPharmaceuticalindustryiswitnessinghealthyforeigndirectinvestment,amalgamationandcollaborations(suchaslicensing,co-development,jointdistributionandjointventures).DomestimanufacturersarelookingtotapintotheinternationalgenericmarketwhichprovidehighmarginsThenumberofAbbreviatedNewDrugApplications(ANDA)totheUSFDAisalsoincreasingeveryyeaTheIndustryiswitnessingaparadigmshiftasthefocusisshiftingfromthemanufacturingofgenericdrtodrugdiscoveryanddevelopment(Glenmark,SunPharma,CadillaHealthcareandPiramalLifeSciencehadappliedforconductingclinicaltrialsfornumerousnewdrugs).WiththepassageoftheNewDrugsanClinicalTrialRules,2019(“CTRules”)theclinicaltrialsectorisalsogrowingsteadilywithmanychoosinIndiaasoneofthefavourabletrialsiteswhenconductingglobalclinicaltrials.Reportedly,India’sclinica6trialsmarketisexpectedtoreach$3.15billionby2025.1TheEvolutionofIndianPharmaceuticalIndustryin2023,UNIMARCK,January29,2024,accessibleat:/the-growth-of-indian-pharma-industry-in-2023-insights-and-statistics/,(LastaccessedonApril22,2024).2Indianpharmain2023:Industryexpertsgivebigthumbsuptothesector;here’swhattheyaresaying,BusinessToday,availableat:https://www.businesstoday.in/industry/pharma/story/indian-pharma-in-2023-industry-experts-give-big-thumbs-up-to-the-sector-heres-wthey-are-saying-357290-2022-12-21,(LastaccessedonFebruary10,2023).34Pricepush:Domesticpharmamarketgrewby6.8%in2023,showsdata,BusinessStandard,availableat:/industry/news/domestic-pharmaceutical-market-grew-by-6-8-in-2023-shows-data-124011100758_1.html,(LastaccessedonFebruary10,202India’spharmaexportsreachUS$27.9bninFY24,EconomicDiplomacyDivision,April24,2024,accessibleat:.in/indias-pharma-exports-reach-us-27-9-bn-in-fy24/#:~:text=In%20the%20?scal%20year%202023,3%25%20dip%20in%total%20exports,(LastaccessedonMay16,2024).56ReportbyUnitedStatesFoodandDrugAdministrationontheStateofPharmaceuticalQuality,availableat:https://WWW.FDA.GOV/MEDIA/125001/download,(LastaccessedonFebruary10,2023).FortuneIndia,Indianowprimedestinationforbigpharma’sglobalclinicaltrials,:/enterprise/india-now-prime-destination-for-big-pharmas-global-clinical-trials/107141,(LastaccessedonFebruary10,2023).?NishithDesaiAssociates2024Provideduponrequestonly1TheIndianPharmaceuticalIndustry—Regulatory,LegalandTaxOverviewExecutiveSummaryThepharmaceuticalindustry,likeallindustriesrelatedtothehealthcaresector,isheavilyregulatedRightfrommanufactureofdrugstoadvertisementandpromotion,eachstepinthedrugmanufacturinandmarketingprocessisregulated.India’spatentregimealsocontainsspecificprovisionsregulatingpharmaceuticalpatentsandthesectorhasseensomesignificantanti-trustissuesonthesubjectofretailsofdrugs.Thecomingdecadeisexpectedtobringnewhighsforthepharmaceuticalsector.Backedbystrongintellectpropertyandregulatoryframework,coupledwithproductionlinkedincentivestheIndianpharmaceuticindustryseemspoisedontheedgeofsuccess.?NishithDesaiAssociates2024Provideduponrequestonly2TheIndianPharmaceuticalIndustry—Regulatory,LegalandTaxOverviewIntroductionTheIndianpharmaceuticalindustryhasbeenwitnessingsignificantgrowthoverthepastfewyearsandexpectedtogrowtoUSD130billioninvaluebytheendof2030.1Generics,overthecounterdrugs,biosimilaandbiologics,aresomeofthekeysegmentsgainingtractionintheindustry.ThebiosimilarsmarkisestimatedtogrowataCAGRof22%tobecomeUSD12billionby2025.2ForaglobalpharmaceuticalcompanyseekingtoentertheIndianpharmaceuticalmarkettoday,theopportunitiesareexciting,andthepotentialistremendous.SeveralfactorsattractglobalpharmaceuticacompaniestoIndia:§?Lowcostofproductionduetoavarietyoffactorsincludingrelativelylowerlabourcostsandrawmatercosts;§?Diversemarketnotonlyforlifesavingdrugsbutalsoforlifestyledrugs;§?PotentialforconductingresearchanddevelopmentactivitiesinIndia–Indiahasmorethan300mediccollegesandover20,000hospitals;§?Existingmanufacturingcapabilitytoproduceactivepharmaceuticalingredients(APIs)aswellasintermediatesatlowercostwhilemaintainingqualitystandards;§?IndiahasamaximumnumberofUS-FDAapprovedplantsoutsidetheUS;§?EaseofconductingclinicaltrialsandbioavailabilityandbioequivalencestudiesduetoIndia’sabilitytoprovidespeedierandlessexpensivetrialswithoutcompromisingqualityandtheavailabilityofavapatientpool.Indiahasalsowitnessedakeeninterestonbehalfofglobalpharmaceuticalcompanies,seekingtoeitheestablishoperationsinIndiaforresearchanddevelopment,manufacturingordistributionortoenterincollaborationsforthesame.India’slow-costresearchanddevelopmentabilitieshelpcompaniesoptimizcostsinashrinkingeconomy.Co-developmentarrangementsbetweenIndianandmultinationalpharmaceuticalcompanieshavecreateabusyatmosphereinresearchlaboratoriesinIndia.TheIndianpharmaceuticalmarketiswitnessingarisincollaborationswithglobalcompaniessuchasGlenmarkPharmaceuticals,GlaxoSmithKline(GSK),MeandEliLilly.In2018,withinaspanofamonth,GlenmarkannouncedanexclusivelicensingagreementwAustraliancompanySeqirusforanallergydrugandanotherwithChinesebiopharmaceuticalfirmHarboBiomedforitsoncologymolecule.PiramalLifeScienceLtd(PLS)andEliLillyandCompanyhavesignealandmarknewdrugdevelopmentcollaboration.Separately,RanbaxyandGSKhavelaunchedaNewDruDiscoveryResearchteamtoadvanceintopre-clinicalinvestigationinthechronicobstructivepulmonardisease(COPD)andotheranti-infectivestherapeuticareas.PLSalsoinitiateddrugdiscoveryeffortswitMerck&Co.todiscoveranddevelopnewdrugsinoncology.ZydusLifesciencesenteredintoanewdrugdiscoveryanddevelopmentagreementwithEliLillytodeveloppotentialnewdrugstocurecardiovasculdisease.Indiaisalsobecomingahubforlate-phaseresearch.1BusinessToday,Indianpharmain2023:Industryexpertsgivebigthumbsuptothesector;here’swhattheyaresaying,availableat:https://www.businesstoday.in/industry/pharma/story/indian-pharma-in-2023-industry-experts-give-big-thumbs-up-to-the-sector-heres-wthey-are-saying-357290-2022-12-21,(LastaccessedonFebruary10,2023).2IBEF,PharmaIndustry,accessibleat:/industry/pharmaceutical-india,(LastaccessedonJune10,2024).?NishithDesaiAssociates2024Provideduponrequestonly3TheIndianPharmaceuticalIndustry—Regulatory,LegalandTaxOverviewIntroductionJohnson&Johnson(J&J)announceditsplanstomakeIndiaaglobalhubforlate-phasedevelopmeofitsnewdrugs.Withthisinitiative,allfuturenewdrugsandcompoundsfromJ&Jwillundergofinpre-productiontestinginIndia.Recently,Torrentannouncedenteringintoanon-exclusivepatentlicensinagreementwithTakedaforsaleofitsdrugVonoprazaninIndia.3Domesticcompaniesaregettingmorinvolvedinsuchcollaborativearrangements.Foratrans-nationalentityseekingapresenceinIndia,whetherdirectlyorthroughcontractualarrangemenstructuringoftheinvestmentarrangementfromataxandregulatoryperspectiveisverycritical.ThisiespeciallytruebecausetheIndianpharmaceuticalmarkethasbecomethehotbedofM&Aactivity.ThpastyearwitnessedasurgeinM&Adealsgiventhesaturationofpatentingopportunitiesandmostpatenofpharmaceuticalcompanieslikelytoexpireinthenextfewyears,bigpharmacompaniesarelookintomaximizetheopportunitiesthroughdealmaking.Thesectorwitnessedover116M&AdealsworthUSD191billioninthepastyear.4SomeofthenoteworthyonesarethemergerofBristol-MyersSquibbanCelgeneCorporationleadingtothecreationofthelargestbiopharmaceuticalcompanyglobally;acquisitioofBioverativbySanofiinthebiopharmaceuticalspacegiventhatthecompanyisfocusedonrarebloodisorders;etc.Furthere-commerceopportunitiesinthepharmaceuticalsectorareontherisebringingwithinitsambtheonlinesaleofpharmaceuticalproductsandcreatinganattractivestreamforinvestmentsandbusinesDoorstepdeliveryofmedicinespavedthewayfore-pharmaciesinthecountrywhichatpresent,runparaltobrick-and-mortarpharmaciesuntilalegislationinthisregardisintroducedinthecountry.Onthesurface,Indianlawappearstobeacomplexsetofregulations,notificationsandapprovalrequiremenHowever,withstepsthatIndiahasalreadytakentohonoritsWorldTradeOrganization(WTO)commitmencombinedwiththeliberalizationandtherelaxationoftheimport-exportpolicy,foreigncompaniesseekinenterthisspacewillexperiencethatmostoftherestrictionsthatexistedonissueslikepricingandlicensihavenowbeenrelaxedtotheextentthatthereisnowalevel-playingfieldforglobalandIndiancompaniintheIndianmarket.Inthispaperwehaveoutlinedtheentitystructures,thetaxregime,bothdirectandindirect,affectingthstructuringofIndianoperations,theregulatoryaspectsandtheintellectualpropertyissuesthataffecthepharmaceuticalandlifesciencesindustry.34TorrentPharmasignsnon-exclusivepatentlicensingpactwithTakedaPharmaforVonoprazan,ET,June5,2024,(LastaccessedonJune10,20Howlifesciencescanmaketherightdealsinatimeofchange,EY,January8,2024,accessibleat:/en_gl/insights/life-sciences/mergers-acquisitions-?repower-report,(LastaccessedonJune10,2024).?NishithDesaiAssociates2024Provideduponrequestonly4TheIndianPharmaceuticalIndustry—Regulatory,LegalandTaxOverviewIndiaEntryStrategiesAbasicunderstandingoftheIndianlegalsystemisapre-requisitetodobusinessinthepharmaceuticsectorinIndia.InternationalpharmacompaniesorinvestorsseekingtomakeinvestmentsinIndianpharmacompaniesshouldstructuretheiractivitiesonthefollowingthreepillars:StrategyLawTax§

?Observingtheeconomicandpolit-icalenvironmentinIndiafromtheperspectiveoftheinvestment§

?ExchangeControlLaws:PrimarilytheForeignExchangeManagementAct,1999andnumerouscirculars,notificationsandpressnotesissuedundertheact.§

?DomesticTaxationLaws:TheIncomTaxAct,1961;GoodsandServicesTaxandcustoms,etc.§

?UnderstandingtheabilityoftheinvestortocarryoutoperationsinIndia,thelocationofitscustomers,thequalityandlocationofitswork-force§

?CorporateLaws:PrimarilytheCompaniesAct,2013andtheregulationslaiddownbytheSecuritiesandExchangesBoardofIndia(“SEBI”)forlistedcompaniesinIndia§

?InternationalTaxTreaties:TreatieswithfavorablejurisdictionssuchasMauritius,SingaporeandtheNetherlands.§

?SectorSpecificLaws:Drugs&CosmeticsAct1940andtheDrugsRules,1945,ThePatentsAct,1970andotherlegislations,regu-lationsandguidelinesthatimpactthepharmaindustryA.InvestmentClimateinIndiaByandlargeforeigndirectinvestmentsarenowpermittedinalmostallthesectorsinIndiawithoutobtainipriorregulatoryapprovals(i.e.underthe“automaticroute”)barringsomeexceptionalcaseslikedefenshousingandrealestate,printmedia,etc.(commonlyreferredtoasthe“negativelist”).Iftheinvestmentisninaccordancewiththeprescribedguidelinesoriftheactivityfallsunderthenegativelist,priorapprovmustbeobtainedfromtheconcerneddepartment(“approvalroute”).Incaseofthepharmaceuticalsector,foreigndirectinvestmentispermittedupto100%throughtheautomatroute.ForBrownfieldpharmaceuticalprojects,anFDIofupto74%isallowedthroughtheautomaticroutbeyondwhichanapprovalisrequiredtobesoughtfromtheDepartmentofPharmaceuticals.Itmusbenotedthatanon-competeconditionwiththeexistingshareholdersisnolongerallowedexceptinspecicircumstancesatthediscretionofthegovernmentregulator.TheCentralGovernmentalsohastherightoaddnewconditionstoaninvestmentiftheinvestorproposestoacquiremorethan74%ofanexistinpharmaceuticalcompany.However,thereisnopriorpermissionrequiredtoincorporateawhollyownesubsidiaryinIndia.?NishithDesaiAssociates2024Provideduponrequestonly5TheIndianPharmaceuticalIndustry—Regulatory,LegalandTaxOverviewIndiaEntryStrategiesB.GovernmentProductionLinkedIncentivesIntherecentpast,giventheincreasedfocusondomesticinnovationandmanufacturing,theGovernmenthintroducedvariousproductionlinkedincentive(“PLI”)schemes.In2020,theGovernmentannouncedthePSchemeforPromotionofDomesticManufacturingofcriticalKeyStartingMaterials(KSMs)/DrugIntermediatandActivePharmaceuticalIngredients(APIs)intheCountrywithafinancialoutlayofapproximatelUSD841milliontoboostIndia’smanufacturingcapacity,elevateinvestmentanddiversifyproductofferiinthesector.Further,in2022,theGovernmentlaunchedtheSchemeforStrengtheningofPharmaceuticalsIndustrywanobjecttoaddressdemandsofsupportrequiredtoexistingPharmaclustersandMicro,SmallandMediuEnterprisestoimprovetheirproductivity,qualityandsustainability.ThisschemehasafinancialoutlaofUSD61million.C.India’sPost-TripsIntellectualPropertyEnvironmentInMarch2005,India’spatentlawwasamendedtoincorporateIndia’sobligationsunderWorldTradOrganization(WTO)regulationsand,specifically,theTradeRelatedAspectsofIntellectualPropertyRighAgreement(“TRIPS”).PriortotheadoptionofTRIPS,protectionofintellectualpropertyrights(IPRsinIndiawasofconcerntoglobalpharmaceuticalcompaniesseekingtoenterIndia.Post-TRIPS,Indiahwell-establishedstatutory,administrative,andjudicialframeworkstosafeguardIPRs.Apatentedinvention(includingproducts)isnowgiventwentyyearsofprotectioninIndia.Well-knowinternationaltrademarkssuchasVolvoandWhirlpoolhavebeenprotectedinIndiathroughjudicialdecisioevenwhentheywerenotregisteredinIndia.Computersoftwarecompanieshavesuccessfullycurtailedpirathroughcourtorders.ComputerdatabasesandsoftwareprogramshavebeenprotectedundercopyrighComputerprogramshavingtechnicalapplicationstoindustryandcomputerprogramsincombinationwhardwarecannowbepatentedinIndia.Thoughtradesecretsandknow-howarenotprotectedbyanylegislattheyareprotectedunderthecommonlawandthroughcontractualobligations.Thecourts,onthegroundbreachofconfidentiality,accordprotectiontoconfidentialinformationandtradesecretsuntiltheProtectofTradeSecretsBill,2024ispassedbytheparliament.India’spatentlawisalsowellplacedtoprovideprotectionforpharmaceuticalproductsdevelopedanmanufacturedthroughinnovativeprocessessuchas3Dprinting.Thisisbecause,Indiarecognizesbothproductandprocesspatentsforpharmaceuticalproducts.D.FormofTheIndianEntityDependingupontheproposedoperationsinIndia,theforeignpharmacompaniesmayconsidersettingonofthefollowingentities,whichmayeitherbeunincorporatedorincorporated.?NishithDesaiAssociates2024Provideduponrequestonly6TheIndianPharmaceuticalIndustry—Regulatory,LegalandTaxOverviewIndiaEntryStrategiesI.UnincorporatedEntitiesAforeigncompanycanuseunincorporatedentitiestodobusinessinIndiavia‘offices’ofcertaintypes.Thoptionsareasfollows:A.LiaisonO?ceSettingupaliaisonofficeinasectorinwhich100percentFDIisallowedundertheautomaticrouterequirthepriorconsentoftheAuthorizedDealer(“AD”).1Fortheremainingsectors,RBIgrantsitsapprovalafterconsultationwiththeMinistryofFinance.AliaisonofficeactsasarepresentativeoftheparentforeigncompinIndia.However,aliaisonofficecannotundertakeanycommercialactivitiesandmustmaintainitselffromthremittancesreceivedfromitsparentforeigncompany.TheapprovalforsettingupaliaisonofficeisgeneralvalidforthreeyearsandcanbeextendedbymakinganapplicationtoADbeforethedateofexpiryofvalidiItisanoptionusuallypreferredbyforeigncompaniesthatwishtoexplorebusinessopportunitiesinIndiB.BranchO?ceSimilartoaliaisonoffice,thebranchofficeofaforeigncompanyinIndiamustbesetupwiththepriorconsoftheAD2forsectorsunderwhich100percentFDIispermissibleunderautomaticroute,withapprovalundothersectorsaccordedafterconsultationwiththeMinistryofFinance.ItcanrepresenttheforeignparencompanyinIndiaandactasitsbuyingorsellingagentinIndia.However,abranchofficecannotcarryoanyretail,manufacturingorprocessingactivities.Thebranchofficeispermittedtoremitsurplusrevenutoitsforeignparentcompanysubjecttothetaxesapplicable.Operationsofabranchofficearerestricteddtolimitationsonactivitiesthatitcanundertake.Thetaxonbranchofficesis40%plusapplicablesurcharandtheeducationcess.ItisanoptionthatisusefulforcompaniesthatintendtoundertakeresearchandevelopmentactivitiesinIndia.C.ProjectO?ceAforeigncompany,subjecttoobtainingapprovalfromtheAD,maysetupaprojectofficeinIndiaundertautomaticroutesubjecttocertainconditionsbeingfulfilledincludingtheexistenceofacontractwithanIndcompanytoexecuteaprojectinIndia.AprojectofficeispermittedtooperateabankaccountinIndiaandmremitsurplusrevenuefromtheprojecttotheforeignparentcompany.Thetaxonprojectofficesis40perceplusapplicablesurchargesandtheeducationcess.Projectofficesaregenerallypreferredbycompaniesengaginone-timeturnkeyorinstallationprojects.Otherunincorporatedentitiessuchaspartnershipsortrustsarenotusuallyrecommendedstructuresfoinvestment,astherearecertainrestrictionsontheforeigndirectinvestmentinsuchstructures.1ApplicationmadefromcertaincountriesaswellasforcertainsectorsstillrequiresapprovaloftheRBI.Availableat:.in/ScripBS_ViewMasDirections.aspx?id=10404#1,(LastaccessedonFebruary10,2023).2ApplicationmadefromcertaincountriesaswellasforcertainsectorsstillrequiresapprovaloftheRBI.Availableat:https://www.rbi.rg.in/ScriptBS_ViewMasDirections.aspx?id=10404#1F,(LastaccessedonFebruary10,2023).?NishithDesaiAssociates2024Provideduponrequestonly7TheIndianPharmaceuticalIndustry—Regulatory,LegalandTaxOverviewIndiaEntryStrategiesII.IncorporatedEntitiesIncorporatedentitiesinIndiaaregovernedbytheprovisionsoftheCompaniesAct,2013ortheLimitedLiabiPartnershipAct,2008.A.LimitedLiabilityPartnership(“LLP”)AnLLPisaformofbusinessentitythatpermitsindividualpartnerstobeshieldedfromtheliabilitiescreatbyanotherpartner’sbusinessdecisionormisconduct.InIndia,LLPsaregovernedbytheLimitedLiabiliPartnershipAct,2008.LLPisabodycorporateandexistsasalegalpersonseparatefromitspartners.B.LimitedliabilityCompanyCompaniesmayeitherbe‘privatelimitedcompanies’or‘publiclimitedcompanies’.i.PrivateLimitedCompanyAprivatelimitedcompanyhascertaindistinguishingcharacteristics.Itmust,initsarticlesofassociationrestricttherighttotransfersharesandprohibitanyinvitationtothepublictosubscribetothesecuritieofthecompany.Thenumberofmembersinaprivatelimitedcompanyisaminimumof2andamaximuof200(excludingthepresentandpastemployeesofthecompany).UndertheCompaniesAct,2013anaturalpersonwhoisanIndiancitizenandresidentinIndiacanalsincorporateaone-personcompany.However,itshallberequiredtoconvertitselfintoapublicorprivatcompany,incasepaid-upsharecapitalofthecompanyisincreasedbeyondINR5millionoritsaverageannuturnoverexceedsINR20million.ii.PublicLimitedCompanyApubliclimitedcompanyisdefinedasacompanythatisnotaprivatecompany.However,privatecompanithataresubsidiariesofapubliccompanywouldbeconsideredtobepubliccompanies.Apubliclimitedcompanyisrequiredtohaveaminimumof7members.Thereisnorestrictiononthenumberofshareholdeofapubliccompanyandapubliccompanymayinvitepublictosubscribetoitssecurities.ApubliclimitecompanymayalsolistitssharesonarecognizedstockexchangebywayofanInitialPublicOffering.Everlistedcompanyshallmaintainpublicshareholdingofatleast25%(withamaximumperiodof12monthtorestorethesamefromthedateofafall).BetweenanLLPandaLimitedLiabilityCompany,anLLPstructuremaybelessfavorableforapharmaceutmanufacturingcompanygiventherestrictionsapplicableonanLLPinreceivingforeigninvestmentundthepresentforeigndirectinvestmentpolicy.?NishithDesaiAssociates2024Provideduponrequestonly8TheIndianPharmaceuticalIndustry—Regulatory,LegalandTaxOverviewIndiaEntryStrategiesC.AdvantagesandDisadvantagesofaPrivateCompanyi.Advantages§?Notasstringentlyregulatedasapubliccompany.§?Moreflexibilitythanpubliccompaniesinconductingoperations,includingthemanagementofthcompany,issuanceofdifferenttypesofsecuritiesandthepaymentofmanagerialremuneration.§?Fasterincorporationprocess.ii.Disadvantages§?Restrictionsoninvitationtothepublictosubscribetosecurities.§?Limitedexitoptions.WehaveobservedthatmostofthepharmaceuticalcompaniesconsiderincorporatingacompanyinIndbasedonthescopeofservicesthecompanyintendstoprovideinIndia.Anothercommontrendobserveinthepharmaceuticalsectoriswherephar